Hello, i am hans nichols, welcome to bloomberg best. We we have been at the World Economic forum in davos and speaking with the most influential policymakers to get their sense of the state of business today, and their vision for where it is heading. We just saw japan go into their territory in terms of the market. Do you think this means a sinister connection for the economy . I think we are going through a correction the imf has , forecasted for the current year. It becomes with a mediumterm with future growth down the road. That is where we are at the moment. We have come out of the deepest financial crisis, and we are now nine years out of that crisis. At that point in time, the global order had reversed. The industrial countries were leading. Were lacking. They had implemented bold programs. The emerging markets have really strong tail winds. Some of them had not use that widely. Now the world is reverting to the old order. The u. S. Is leading the cyclical recovery. Industrial countries are doing better. It is a normal correction. It will last for some more time, but i do not think we really see a downward spiral. Does it feel too right now that this is just a correction, or are we at the beginning of something more enduring . It feels like a correction to me. If i thought china was in freefall, i would be really concerned. I actually dont think that the consumer and the Service Economy is holding up pretty well in china. But there are parts that are way overdone, whether it is steel, coal, overbuilding of residential and in certain of the interior cities, and so if you just take one anecdote, you could get you could get really erik you could get what you want, right . Stephen you could paint a really bad picture, in terms of the stock market and in terms of policy implantation. Implementation. Erik if the selloff doesnt stop, what happens then . Stephen the markets become reality if they affect the behavior of regular people. At this point, i dont think that has happened. The markets are in turmoil. We worry about china, the fact that you may not have ammunition to deal with inflation. What do you think the markets are spooked by . Well, overall my perspective is, if you really want to look and forecast the economy and look at the real economy, dont look at the Financial Markets as an intermediary of the real economy. We have been in a period in which there has been a disconnect between what the Financial Markets tell you, and what the real economy shows you. It was really pronounced in china where the Financial Markets went almost unrelated to the economy. By the way, the correction in the Financial Markets in china is significant and maybe, i would say, welcome, because any balloon that has too much air in it needs to let some air out without a complete explosion. It will have impact on growth in china, but lets face it, the Financial Markets in china are narrowing a very small fraction of the chinese economy. China will continue to grow. It will continue to grow at a slower rate than what it has. And it is by design. They have changed their Growth Strategy from manufacturing and export reliance is to services, which means they do not need to grow as rapidly. It has international applications. It reduces the demand for commodities by china. But the implications are a casebycase approach. Not everybody is affected. Erik once again, the selloff. It feels kind of like 2009, but i hope not. What does it feel like you . It reflects a tugofwar. I think that tugofwar things plays out in the market. Erik it sounds sensible. Brian it is sensible. At the end of the day, these companies have to keep driving, and the economy is just as strong as it was a few weeks ago. Francine what is your main concern today . Deflation . Is it china . Maurice first, i would like to make just a small comment regarding the reaction of the market. They are overreacting to news. We are already there. I think there is no new news. When you look at the situation regarding oil price, or the growth in china, as well as the other issues, the global growth, we have all known in a while, the situation was not going to improve markedly in 2016. I am just a little bit concerned, but i think there is an overreaction. Francine right. The markets fear a global slowdown. Maurice it is not that new. It is not a real slowdown. We have not had the kind of growth that we were expecting. They dont know who, besides the french, were really thinking that the economy would take off next year or this year . The market is so nearsighted. This is the problem. The market sees these problems that are so immediate. The market does not know how to interpret that 4 billion human beings need Cheaper Energy costs and that that money will be reput back into the economy. We dont see that. It is so incremental. This is why the market still may have some digestive problems, but over the course of the next year, we will see a higher market. Global gdp will be around 3 . Maybe not as high as the imf believed. But i am not that worried. You are managing a lot of assets for a lot of people. What are you telling them . It has been so fast, this correction that we are in the middle of, and in many ways, that is more helpful and more cathartic rather than if it were slow and painful. And i think that is allowing people to hope that it is just an asset price recovery and not something more to do that has to to do with the fundamentals of the economy, and the can actually be quite helpful in some of all of the cash on the sidelines in many portfolios. As you begin to find better entry levels, perhaps we can get back to normal. What you dont hear is our clients panicking. You got some money coming out. Not a lot of money jumping in at any particular point in time. How much of this is china, how much of this is oil, and how much is this Something Else . Mary there are a lot of conversation here about china and oil, those two things alone are in which you have a very interesting event are not going to cause a global recession. Francine a few weeks ago, you said we should actually be much more careful so we avoid repeating 2008. George 2008, regarding repeating, it was a time of financial crisis and a bear market. And we have the same conditions today. But, the source of this equilibrium is different. In 2008, the root cause was a subprime crisis in america. Now, the root cause is basically china. So it is not comparable. Francine is this because they george it is deflation and over indebtedness over the chinese of the chinese economy. The total social debt is down 300 and maybe actually might be up to 350 if you take into account the external debt. So, it is serious. Hans welcome back to bloomberg best. Im hans nichols live in davos at the 2016 economic forum. Here are some of bloomberg televisions best conversations from the week. Francine when do you see it when do you see the bottom in oil prices . Is an issue for oil. I think it is also at issue for oil, because lower, slower oil demand. Which means there is going to be lots of oil in the market. It is the third year in a row we will have more supply than the demand. For 2016, the supply and demand situation will be under pressure and i dont see any reason why we will have a surprise increase in 2016. Francine what would it take for rebalance . At some point, this oversupply will come onto the market. Is there any possibility that after two months, this will affect the market more . At this indexces at very low investments, which means in a few years time, there will be a strong upward pressure on the prices because there will not be more new projects coming on the scene to meet the growth. This is very serious. When we look at the economies of major oil producers, they are in bad shape, and they may be in worse shape if the prices remain at these levels. Francine but you are telling me that we are creating a shock. You are telling me that we have a potential of creating an oil shock . I would not use the word shock, but there will be pressure on the upward sector because of the lack of investment two years in a row in the oil sector. When will markets rebalance . I know there is an Oil Oversupply issue, but will we hit the bottom at six months away, or in 12 months . Daniel i think because the producers show no inclination to get together, we think that in the second half of the year, this is so severe that you start to see a rebalance in the market, maybe at the beginning of 2017. The suncor transaction announced this week in canada means that oil is much more cheaper than the global price. When you say rebalancing, what do you mean by that . Daniel price starts to move up, and at the end of the year, we at the of the year, we could second half see prices, you know, a good deal higher than they are today. Not what would have been 100. Not 60. Not 70. But the prices will come back and operate more along the fundamentals of a balance. Francine and i do think [indiscernible] the problem is, because this is actually a geopolitical problem too, which is that saudi , arabia and iran are at odds and saudi arabia says that there is not room for iranian oil and i ran it wants the market back and iran wants the market back and they need to get together, unless, and this is what were saying, and we need to make sure that this happens and even the russians will get a cut. Are production cuts realistic . For me, i think this is more of a meeting and for a chance to sit down and talk. Everybody emphasizes price, but price is really not the issue. What is the issue . It is about the future of the oil industry, the future of the oil stock. It is a whole on more than price. Even if you correct the price, what, for example, is the matter with having a Diversity Center in five or 10 years to bring back stock into the market. I dont think a cyclical downward turn it will show up tomorrow as a major upward movement to affect the economy. Everybody has agreed on one thing prices today are not good enough and there is a lot of stock in the market. Opec cannot do this all alone. What we need to do, we need to get opec back in and they need to talk. I spent a large part of my career doing m a deals where the oil prices were between 10 and 20 a barrel. A lot of people forget that. Yeah, exactly. A lot of consolidation took place when a lot of Big Companies were built, were talking exxon, shell, bp, they were built when oil was 10 or 20 per barrel. I think this is a period when people are going to look to aggressively pursue consolidation. The Energy Market at this point is metrically pointing where we are heading to. I think this creates a lot of challenges for total economies. However, i think, the Positive Side of it, we need to look at this as normal supply and demand economics and we need to overcome the current problems of oil prices, for example. The challenges for companies to focus on growth and to focus on longterm, and i think that is the way you can overcome the current challenges for your company. Francine how much do you understand about what is going on in china . What is your view . Yousef i think we are excited about one important element, and that china has announced last month that their economy heavily depends on Foreign Investment and export. They want to stimulate domestic consumption, and at the same times, this would improve upon their quality of products. They want to go to mid and high end. I think this is strategically a very positive transformation for china. Francine will it take time . Yousef it will take time. Again, with the size of the economy like china, and the long run, it will transform into a very positive contribution toward the overall economy. Hans you are watching a special edition of bloomberg best. Political leaders, policy makers and power players in business and finance all come together here for the week in davos. It is a group that has many Common Concerns come up with their philosophies and perspectives differ. That was on display in some of our best interviews of the week. Francine so are you expecting more volatility in 2016 . Christine there will be volatility in 2016. We have three major Downside Risks on the horizon, and one of which is the massive chinese transition to a new economy, which will be bumpy but will seem resolute and is welcome , going from a very high growth rate to a lower growth rate and moving from being exportdriven to being industrydriven and all all of that and all of that will have a high degree of volatility. The lower Commodity Prices are also going to entail a degree of volatility, as well as economic policies around the world and changes coming up in 2016 will yield volatility. Francine your biggest concern is a risk of deflation . Christine the biggest concern is to make sure that the Global Economy is actually on track to provide enough growth to respond to the needs of those people who are looking for jobs, those people who are expecting more sustainable growth. That is the main concern. Francine and you think this will achieve that . Christine everybody has to do their job. What we have called for is an upgrade of policies. Policy makers need to agree more and really focus on the right set of policies that will improve the Global Situation as well as their own domestic position. Tom how do the developed countries maintain confidence and avoid stagnation in emerging markets . Growth would be good. We would love the industrial countries to grow faster and the real question is how we can make that happen. My sense is certainly, stimulus has run its course. Exit is an issue, once you are in the situation, how do you get out of it without creating an abrupt change in asset prices . That is what we are grappling today. , but globally speaking, i think the answer has to lie in the jonathan are there any negative consequences at all of running a budget deficit above 3 . There is. What are they . It is about debt. Debt has to be reimbursed. If you can borrow at 2 , what does it matter . The problem is if debt will keep rising, you cant do anything with your services, you cannot finance education, you cannot finance health, you cannot finance security, you cannot finance justice. It is about gaining maneuver. You will not move forward for proper economy, social, and security policies. For europe it is a security policy. I have to say, tom, it is a little interesting to me that when china was growing, everyone said they were exporting deflation. Now they are collapsing. Francine now they are deflating. [laughter] tom are they escorting the exporting inflation, or is that deflation or is that an undergraduate fallacy . It was productivity shock that was good and now they are collapsing and it is not good. I certainly think that the overarching phenomenon of these banks shows lower growing real Interest Rates and that has driven them down. I think, you know, they have to think about negative Interest Rates. I have written for 20 years about phasing out large denomination notes so you could go to negative Interest Rates. That is considered wacko, but who knows . Tom what is your policy prescription to amend the nascent plutocracy in america . Bob this is a plan so that the going out many years and a plan that automatically adapts to inequality. So that taxes on the rich go up in such a way to preserve the inequality we have today. I am not proposing the address that we read just it we redress it. You know, havent we agreed that it has gone far enough . Tom what about the Republican Party talking about too much taxes, when you look at the aggregate sum of so many taxes, and even if it i give them my tax dollars, they wont know how to spend it . These are ancient traditions within our conservative ethos. Bob if i am talking to republicans tom this is exclusive, mr. Bob schiller talks to republicans. [laughter] bob i have a free market side. The other thing is, we need to develop insurance, free market insurance vehicles to protect against inequality. Of course, we already have that, to some extent. Life insurance, fire insurance, these are all engines protecting us. If your house burned down, you used to be poor. Not true anymore. We have to expand the scope of our Insurance Industry and we should start insuring livelihoods. Hans coming up, more interviews from bloomberg best. Hans welcome back to bloomberg best. Im hans nichols. We are here in this protective valley and the theme has been technology on the fourth industrial revolution. Is this the right environment to discuss disruptive change. Clearly it was a lively summit. Here are the best conversations from the week. What messages are you getting from the markets . Im not worried about what message i get from the market. Our businesses are doing great. We expect them to do better still. Youve got oil collapsed. Not because of the global recession, but because the quantity of oil exceeds demand. Youve got iran coming on. You have half of Million Barrels a day. They could go up to 3 million or 4 Million Barrels. Were looking at a world with low crude prices for many years to come. Stephanie its expensive to fill those planes. Richard it will have a positive impact on consumers. Stephanie i dont see that anywhere. Richard it will all come through. Thats why its so baffling that the markets are behaving this way. America and europe are not that dependent on china. China has dropped in its growth. I am completely baffled by the fact that they are cutting oil shares down by 30 . More companies will be with the lose. I think china i dont think china is going to any fundamental collapse. Its going to be growing 6 this year. Its still a great economy. I am not worried about the longterm for china. Even if they caught a major cold, its not get have that bigger affect on the United States or europe. The end result is going lower Commodity Prices. Everybody else will benefit. Youve got a robust business. Maybe the bad news is the analyst expect you to keep that up. I think there is a secular tailwind behind Digital Payments and mobile payments. For the first time ever, more people shopped online and on mobile phones than the stores on black friday. There is a secular tailwind around the move meant cash to digital and the explosion of mobile phones as well. Youve got the power of a bank branch in the palm of your hand. There are tailwinds behind us. Weve got a lot to execute on. Is there a limit to the number of Digital Payments merchants will support . You hear an announcement every week about some other payment form going on. What merchants are concerned about is not Digital Payments using mobile and software to get closer to customers. Most people conflate Digital Payments with tapping your phone at a point of sale. I think thats just a form factor change. If its just a matter of tapping your phone versus swiping a card, thats not very exciting. If theres a real value change at the pointofsale, you can skip line, you can order ahead, you can get awards on your mobile phone, thats a real Value Proposition change it i think when that starts to happen, retailers are looking at that and you will see an acceleration of Digital Payment systems offline. You see it online. Theres a notion that everything is really bad. Yes, there is a lot of red and green. There is a lot of opportunity in the world and people are coming into the middle class in africa and asia in many parts of the world. There is high unemployment. There is high yield unemployment and weve got to do something about that. Commodities are very benign. There are some and takes. At the same time, we need to be more targeted with our investments. We are continuing to invest in the downturn. Stephanie you are not in the business of m a this year. Seen the pain so Many Companies are facing, and this be a time of consolidation . Weve got one acquisition. There is a lot of work to get that. They have Tremendous Hotels in great brands and we want to get that done in a way thats constructive and builds the platform we think we can build longterm. Stephanie do you think competition with the right for m a . The cheapness is not as profound. Even in our deal with starwood, we are using equity so the value of the deal is less than when we announced it or it we are using the same number of shares. It could be china. It could be private equity platforms of some sort. Stephanie where do you want to get more conservative . We are not pulling back at all. Every deal we do, we deal with a thirdparty real estate investor. We signed a lot of hotel rooms went to our system for the next few years. We think the longterm travel trends will be very powerful. What is acceptable . We are talking about emissions for diesel. What is acceptable . Its not up to me to say. The industry, you have electric cars, you have hybrids and many other technologies. We are talking about one specific in mission. Outside the norms, we need the rules. Francine how long do you expect this to hang over your share price . People have questions about Something Like this. Francine when will it stop . All the data will come. We will have confirmation of what we have been saying. There is no risk of cheating. Francine what the job risk . The whole company would be at risk. You stand by the announcement. Francine what has been the most frequent question by shareholders . Is there any lien will be on the company . That is the main question. That is my share prices go down. Whenever they are reassured there is no liability and the problem is more about expectation in areas, things will die down. Hans welcome back. Here are some the conversations we had with the just names in the business at the World Economic forum. Francine talk to us about m a. There were megamergers driven by the need to cut costs. His volatility something that will spur more m a this year . Its too early to tell. Extreme volatility reduces m a. People get afraid. Its hard to know when you are pricing into a difficult environment. Certain types of volatility call m a when Companies Feel the pressure from lack of growth. All of the signs are on the pressure of deflation creating a pressure across industries. Consolidation is a way to grow the bottom line. Francine they will be consolidating this year . We are in the early stages of seeing the damage done by low Commodity Prices. The report the fact of commodities and how they move when they decline on a global basis, normally it ripples through the industries and into the banking sector. Almost never can you avoid problems in the Banking Industry when commodities go down. Is blackstone having trouble raising financing . We are on two sides of the credit arc. We are a big credit operation. They are experiencing the other side of that. There is a big demand for money, much higher rates of return than there were. They are a listing investments. They go down on a market to market basis. Not the ability to have principal on interest returned. Its more of a mark that an impairment. In the junk markets, the jump markets have cap doubt. Its hard to issue large quantities of junk is the markets go through a time of instability. It doesnt mean dealmaking is on hold. Price sometimes cares some of these other issues. As stock markets have gone down, valuations have gone down and that arm we takes six months or year for all of those new relationships to normalize. Then there will be larger scale buying start. If there is a repricing happening in some borrowers are shut out of the market, what effect will that have on m a . We have not had any downturns in conversations. The amount of discussions about what to do, im not going to say its better. It hasnt stopped. We could see 2016 be as good a year as 2015 . Possibly. It was fairly flat. I dont have the number on the tip of my tongue. I think you will see the middle Market Companies try to find ways to up their credit and do things to solve problems that are coming as a result of the slowdown of the economy. We think this is a positive time to be investing. The prices are lower. The currencies are better. I think youre going to see investors come into the market. The question of liquidity is around the traders providing liquidity. Is there a structural change beyond the recognition . A lot of automatic trading through algorithms, has the structural market changed to do a get more volatile . Yes. They are pressured by regulators to get out of speculated and commodities. Now we have a lot of volatility in commodities. Were surprised at this . Is now its time to be shopping for bargains . I think were starting to feel opportunistic. There may be some rock n roll. I think there will be some rock n roll in the markets. If i do that, i would be a billionaire. I think there is going to be some rock n roll and it does require prudence. With the focus the governments need to have on building growth, do we think the world is falling apart . We do not think that. Hans more conversations from our coverage of the World Economic forum. Hans welcome back to bloomberg best. Mario draghi and the European Central bank rolled out a massive quantitative easing program. Monetary policy was on peoples minds. Tom mario draghi just reaffirmed one of your fears. What are the ramifications . There are concerns about china and the Oil Price Falling because of global growth. There are emerging markets and conflicts. They are making the market nervous right now. Bad news becomes good news when there is policy reaction. Therefore, you saw what happened when he said we are likely to do more in march. The markets rallied. The markets are expecting the fed to height later on. This is a situation where the hate it is shaky. Data is shaky. Tom you dont agree with george soros on a hard landing or china and the world . The financial imbalances are smaller. Ive been interviewed for a number of years. Its going to be bumpy and rough. Francine mario draghi said he is ready to act. How much will it help . The markets have misunderstood what happened in the previous meeting. The markets sold off. That was a mistake. Markets expect action and there was no action coming. For draghi, he did not want to act without having german support. He wanted stronger evidence. He did not want to push it. He had one or both of those conditions. Now he could confirm that he has it and they will act in march. I was going to predicted tonight. They stole my line. Stephanie mario draghi spoke and got everyone comfortable. Is it time to ease again . Erik schatzker it depends on if this is a temporary correction. The absence of fundamentals suggest it might be. This is a strong Market Reaction against a background of solid Global Economic growth, not phenomenal. This is solid growth of 3 . As you know and report on every date, the markets are very irrational. The animal spirits do rain. Companies that were worth 40 more six months ago, nothing changed and they are dropping. The difference this time is oil. I was not somebody who thought that the fed should he raising rates quite yet. I would like to see a little more certainty in the Global Economy. Do you like Larry Summers argument . I dont know where i go on the overall secular stagnation. If you asked me what i think is the great struggle of our time or great challenge of our time, we have increasing globalization and technology that is dramatic. Its doing all kinds of fantastic things. There is one thing thats not as clear, is it leading to a broadening or hollowing out of the middle class . I think in each advanced country they are wrestling with that right now. Erik schatzker janet yellen thought that on the basis of strength in the labor market and expectations for a little inflation, raising rates was the right thing to do good are we going to look back and say that was a mistake . The feds credibility is on the line. If i was in the room and had the same information, i probably wouldve made the same decision that made. Since then, a downdraft in terms of oil and slowing in china, what we are through, we dont see this as a negative fundamental shift in terms of the markets. There is a repricing. Stephanie should she raise again . They should watch and see. We thought we would see four rate hikes and that his move back to three. Some are starting to talk about two. Were going to have a waitandsee attitude. Hans thats all for this special edition from the World Economic forum in switzerland. You can always get more business coverage at bloomberg. Com. Im hans nichols. Thanks watching bloomberg television. Welcome to bloomberg businessweek. 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